Lebanon’s Triple Crisis

Lebanon has managed to contain its COVID-19 pandemic, with nearly with 717 cases so far, thanks to strict a lockdown, confinement measures and nightly curfews that have hit hard an already struggling economy. Prior to the pandemic, the country was unraveling under the weight of an economic collapse, public policy challenges, and long-entrenched corruption. A viral outbreak puts even more pressure on the already vulnerable country.

Over 717 people have been diagnosed with coronavirus in Lebanon and another 24 have died from the infection. Many experts fear that the health sector—already plagued by medical equipment shortages due to dwindling foreign currency reserves, Lebanon’s trade deficit, and default on debt—will be overwhelmed by a second wave of infections. In March Human Rights Watch warned that Lebanon’s overwhelming financial crisis is contributing to the scarcity of medical supplies necessary to fight the outbreak. The Global Health Institute estimates that there are about 350 to 500 beds in intensive care units across the country, while a 2013 study by Banque Bemo puts the number of hospital beds at around 15,000 for a population of over 6 million, which also includes Syrian and Palestinian refugees.1 Dr. Shadi Saleh, founding director of the Global Health Institute, underlines that Lebanon took early preventative measures, such as enforced social distancing, to slow the infection rate. These measures gradually escalated into a quasi-shutdown excluding critical services. He warns, nonetheless, that it remains to be seen if countries can sustain this strict level of compliance, especially if economic support is not provided to the poor and disadvantaged. He notes that the government would need to inject $135 million every month in order to provide continued support to the 300,000 families that live below the poverty line in Lebanon.

Yet poverty is growing by the day. A World Bank Report expected before Lebanon’s default that 50 percent of the Lebanese population will fall on or below the poverty line if the economic crisis was not quickly tackled. Social Affairs Minister Ramzi Musharrafieh told CNN that the government believes that up to 75 percent of people are in need of aid,. In light of the new economic strains inflicted by the pandemic, the Lebanese Central Bank has called on Lebanon’s banks and financial institutions to grant extraordinary Lebanese pound or U.S. dollar loans to clients to cover previous loan installments. The Lebanese government, which has a limited capability to respond to the crisis, earmarked a $145 aid package for the poorest families, an initiative that has since been frozen due to the lack of political consensus. Lebanon’s yearly trade deficit, which amounted to nearly 16 billion in 2019, is straining Lebanon’s dwindling financial resources. To make things worse, in early March the government defaulted on its $90 billion debt.

The economic crisis combined with the COVID-19 pandemic herald difficult days for Lebanon. Since last October, the country has faced mass protests denouncing the incompetence and corruption of the political class and their inability to respond to the economic recession. Around 220,000 people lost their jobs last year and employees are seeing their salaries slashed, either by pay cuts or as a result of the declining Lebanese pound value, which has lost over 80 percent of its value on the black market. Some estimates claim that the unemployment rate stands at 25 percent. Others, such as Lebanese banker Dan Azzi, estimates that before the pandemic, the figure stood at over 30 percent among the general population and 40 percent among the youth.2

Experts believe that the economy will contract further. The GDP contraction rate, which was estimated at four percent in 2019, will reach double digit figures this year, according to Nassib Ghobril, the chief economist at Byblos Bank.3 The inflation rate, which was estimated at 10 percent for January, is also expected to double, resulting in citizens losing at least 50 percent of their purchasing power in the long run. Banks, which are directly exposed to the Lebanese debt, will have to write off their losses from their balance sheets, which will effectively translate in a haircut on Lebanese deposits. Dan Azzi believes that the Lebanese default, combined with the excess spending of past governments, has wiped out Lebanese wealth and resulted in a direct wealth destruction of over 50 percent.

Years of failed governance make an economic reboot impossible. A 2018 McKinsey report underlined Lebanon’s catastrophic situation. Lebanon's ranking in the ease of doing business index worsened from 103 to 133 between 2010 and 2017. The Lebanese electricity sector remains one of the worst in the world with rampant electricity cuts, despite its heavy burden on the country’s budget. The general infrastructure is also disastrous. According to a McKinsey report, only 15 percent of roads are in good condition, and Lebanese citizens spend 50 percent more time than necessary on congested roads. Further, the telecommunications sector falls far behind regional averages. Voice and mobile data prices in Lebanon are around three times higher than those of its regional counterparts, such as Morocco and Egypt, with additional poor fixed network quality. In addition, the average bandwidth speed is slower than 6 Mbps, placing Lebanon in 130th place among the 133 countries in the world, behind Pakistan, Iraq, and Syria.

Lebanon cannot resolve its predicament without substantial aid. In 2018 the CEDRE conference earmarked $11 billion in assistance for Lebanon from international donors, conditioned on reform. The conference envisioned massive reforms to the economic and infrastructure sectors and proposed large-scale projects to develop Lebanon’s transportation, water, irrigation, wastewater, electricity, telecommunications, solid waste, tourism and industry sectors. However, the COVID-19 pandemic’s economic repercussions, the country’s souring relations with Arab funders, and Lebanon’s economic collapse make a bailout unlikely at this time.

Additionally, reforms will face implementation challenges as Prime Minister Hassan Diab struggles to gain power away from entrenched interests. Decision making still lies in the hands of Lebanon’s war lords and their offspring who dominate the current Lebanese parliament. Inept politicians have amassed fortunes by robbing the state, which is ranked as the 137th least corrupt nation out of 180 countries in the Trading Economics Corruption Perceptions Index.

Lebanon’s current sanitation crisis is the country’s fourth horseman of the Apocalypse, trailing behind a triple economic, governance, and crippling corruption. While violence has remained episodic so far, with small clashes and protests erupting across the country from Bekaa to Beirut and Tripoli, it will increase as the state and its institutions slowly falter, the economic slows down and the poor go hungrier. Lebanese political parties are trying to rebuild their reputation by opening medical centers in their respective regions or, like Hezbollah has done, deploying tens of thousands of volunteers in a show of forceful response. But they lack the financial support their sponsors once gave them. The inter. national community is struggling with its own pandemic. Arab countries have rightly abandoned a belligerent Lebanon and Iran is simply broke. Lebanon will be left alone to tackle one disastrous event after another. Riots erupting across the country this week are telling of the sentiment of doom reigning over the country. It might be time for the people to take matter away from their failed leaders and into their own hands.

Mona Alami is a Senior Nonresident fellow at the Atlantic Council and at Trends Research and Advisory. Follow her on Twitter @monaalami.

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